Income protection insurance
Income protection insurance is a protection product that replaces your income if you are unable to work
The most popular protection products are life insurance and mortgage protection insurance. Typical values are in the region of €250,000 cover.
But what if you earn €60,000 per annum and at age 40 you contract an illness or a condition that results in you being unable to do your job. Imagine that you cannot return to work at all, due to the condition and you claim income protection each year until you retire.
If your income is €60,000 and you are self employed you can arrange a policy to cover you to maximum of 75% of your income ( benefit will be €45,000 per annum)
If you are a PAYE worker you can claim up to 75% of your income also, less the disability benefit you will receive from the state equal to €10,566 ( benefit will be €34,434 per annum)
The deferral period (the waiting period until your cover clicks in is assumed to be 26 weeks). Six months may seem like a long time but this benefit is best seen as a long term protection cover and could protect you all the way to retirement.
You should also always check with your employer what sick pay arrangements are in place for the first six months after missing work due to illness.
Monthly Cost after tax €60 for a self employed person
Monthly Cost after tax €46 for a PAYE employed person
Tax relief assumed at 40%
Same example but at Age 30 - Income protected €34,434 to age 65.
Cost per month €29 ( Tax relied assumed 40%)
Assuming you have a valid claim, the insurance Company will pay out €34,434 per annum if you are unable to work starting after a deferral period of 26 weeks, until such time as you can work again or up to retirement age.
What happens if the things you take for granted suddenly disappear?
- 1 in 6 of Ireland's working population will be disabled for more than 6 months
- The average claim duration is 5.5 years
- Social Welfare disability allowance is just € 10,296 per annum for an individual
- For a family with 1 adult dependent and 2 children this is just € 19,610 per annum
- There is no Social Welfare benefit for the self-employed
- Only 15% of private sector workers are entitled to sick pay for more than 6 months
- A new Public Service Sick Leave Scheme was introduced on 31st March 2014. The new scheme provides that employees who are absent on sick leave may receive up to a maximum of 3 months on full pay followed by 3 months on half pay in a rolling 4 year period.
- 36% of those surveyed incorrectly believe their salary is protected by other insurance e.g. Mortgage Protection, Loan Repayment Protection and Critical Illness cover*
- However, less than 10% of the Irish Workforce have any form of private salary protection
Our income protection product helps you stay on top of the bills that matter, even if you were unable to work for three months or more due to illness, injury or disability.
Product features include:.
- Any type of illness or injury which prevents you from working is covered.
- Monthly payments are made until you can go back to work or retire.
- You choose the level of cover you require and how soon it begins after you have to stop working.
- You are covered for up to 75% of your net relevant earnings, less social welfare entitlements.
- You qualify for tax relief on your premiums up to your marginal tax rate.
Affordable Tax Efficient Premiums
You choose the level of benefit and the various options you want to include and we calculate the your premium based on that information and of course your health. And because your premiums qualify for tax relief up to 41%, it could be cheaper than you think to protect your lifestyle.
Choose from a range of plans:
- Individual Income Protection for those taking out a policy independent of their employer or the self employed.
- Wage Protector supports people in more skilled manual trades.
- Mortgage Income Protection covers regular mortgage and loan payments during sick leave
An income protection policy pays out a regular cash payment that replaces part of your lost income if you have a long-term illness or disability and you can't work. It is also sometimes called 'permanent health insurance'.
Income protection policies are not the same as private health plans such as Vhi or Bupa. If you are ill and need medical or hospital care, private health-care plans help pay for the cost of your treatment and hospital costs. They do not pay out any cash benefit.
Income protection plans do pay out a cash benefit, but only if you are not able to work because of your illness. The cash is paid out as an ongoing taxable regular income for as long as you are not able to work because of the illness.
You must be in full-time paid work or be self-employed to get and continue to have income protection cover.
You may need income protection if:
- you are self-employed
- Your employers sick pay policy will not cover long term illness
- you are concerned about how you will manage in the event of an accident or illness
But before you take out income protection, you should first check if you are entitled to other benefits, which may mean you don't need this cover.
If you are sick or disabled, you may be able to get:
- social welfare disability benefit - a weekly payment you can get from the state. It is not available if you are self-employed
- sick pay - when your employer gives you part of your salary or wages for a time after you become sick or disabled
- an ill-health retirement pension - this lets you take early retirement with a pension if you become permanently unable to do your job.
How does income protection work?
Most income protection policies pay out a benefit if:
- you are unable to work at your normal job because of illness or disability; and
- you do not have any other job.
You get your benefit only after you have been unable to work at your normal job and are not working at any other job for a set period. This is called 'the deferred period'. You can choose from 13 weeks, 26 weeks or 52 weeks. If you choose a deferred period of 13 weeks, it will cost more because your benefit would start sooner.
If you are insured through a group scheme, you get the proportion of your earnings stated in the group policy, less any other payments you get when out of work, such as sick pay or social welfare disability benefit.
If you have an individual policy, you can set the amount you want to be insured for, when you take out the policy. The policy terms and conditions will tell you the maximum amount you can claim. It is usually 75% of your earnings before you became ill or disabled, less any other income you get while out of work, such as sick pay.
Usually your benefit payment stops as soon as one of the following happens:
- you return to work
- you reach age 55, 60 or 65, depending on the policy
- the insurer's medical officer, who may check your medical condition from time to time, decides that you are fit to return to work
- you die.
How much does it cost?
Costs will depend mainly on :
- the amount of your cover
- the deferred period
- the term of the policy you want.
After that, the main factors are your age, gender, health, family medical history, job and lifestyle.
Your job affects your premium because some jobs are riskier than others. Insurance companies put jobs into classes, and charge different premiums for each class.
You can get tax relief, at your marginal (highest) rate of tax, on your premiums up to a yearly limit of 10% of your total income. This can make premiums more affordable but remember your benefit will be taxable if you have to claim.
Could my insurer refuse my claim?
Your insurance company may refuse your claim in certain situations, for example, if a claim is caused directly or indirectly by:
- war, riot, revolution or a similar event
- you taking part in a criminal act
- drug or alcohol abuse
- other self-inflicted causes.
These are called exclusions. It is important that you know these exclusions before you take out a policy. You would also not usually be covered if:
- you did not follow medical advice
- your disability was caused by a dangerous hobby such as hang-gliding or parachuting
- you changed jobs and didn't tell the insurance company
- you moved abroad and didn't tell the insurance company.
If you have an individual policy, there may also be other specific exclusions. For example, your policy might exclude claims for a back injury if you had a previous history of back pain.